Saturday, 13 February 2010

The Fuchs M9801 multi-option fuze for artillery shells from 105 mm to 203 mm. Fuchs fuze components are imported by the Electronics Corporation of India Limited (ECIL), assembled, and sold to the Indian military

(Part 2 of a series on: DPSU Dadagiri: hanging onto monopoly)

Yesterday’s article, on the MoD’s violation of procurement rules in nominating BEL for developing EW systems, made waves in Bangalore soon after hitting the stands. On the last day of a 4-day, MoD-organised seminar on EW, officials from private companies were effectively expelled from a seminar they had been invited to attend. Before resuming this morning an announcement was made: today's session is only for the public sector!

by Ajai Shukla

Business Standard, 13th Feb 2010

Controversy surrounds the Ministry of Defence’s Rs 800 crore procurement of artillery fuzes, tiny electronic devices that cause artillery shells, fired from guns like the 155mm Bofors, to explode when they reach their target. Forbidden by a Lok Sabha committee from ordering fuzes on a single-vendor basis from the Electronics Corporation of India Limited (ECIL), and to ensure multi-vendor competition instead, the MoD has structured the tender in a manner that excludes private bidders.

Simultaneously, proceeding on a single-vendor basis, the MoD has ordered 4,00,000 fuzes, worth over Rs 200 crores, from ECIL, citing urgent military needs.

ECIL is not a defence PSU; it functions under the Department of Atomic Energy. But a close relationship with South Block, which terms it “the sole approved supplier”, has long given ECIL automatic rights over 80% of the army’s requirement of fuzes.

That near-monopoly status has been questioned by a stream of MPs, the Central Vigilance Commission (CVC), the Lok Sabha Standing Committee on Defence, and the Lok Sabha Committee on Petitions (in its 43rd Report, tabled on 8th Nov 08).

The questions raised against ECIL include its dependency on South African company, Fuchs Electronics, the main supplier of fuzes to blacklisted South African armaments company, Denel. Critics have pointed out that ECIL merely assembles fuzes from components supplied by Fuchs. The main components --- a safety & arming device (S&A), the battery and an electronic timer kit --- all come from abroad.

Despite that, ECIL has flourished with its key buyer --- the Indian Army’s artillery branch --- on its right side. Army HQ admitted to a Lok Sabha committee that its former Director General of Artillery, Lt Gen Charanjit Singh, joined ECIL as an advisor immediately after he retired. The army’s justification: “ECIL had been appointing several retired defence officers as their advisor (sic).”

ECIL has not responded to an emailed questionnaire on these issues.

But the most serious charge against alleged MoD-ECIL collusion is the MoD’s alleged doctoring of its tender (Request for Proposals, or RfP, in MoD terminology) for the supply of some 10 lakh fuzes, a contract worth some Rs 600 crores. The RfP has lumped together three different kinds of fuzes: point detonation, timed and proximity fuzes. A vendor either supplies all three types, or supplies none. Private companies like Hyderabad-based HBL Defence Electronics, and Delhi-based Micron Instruments Pvt Ltd, all manufacture one or the other type of fuzes, the stipulation that vendors must provide all three fuze types effectively rules them out of contention.

Artillery experts say that each fuze type involves different technologies. Lumping the three types together would exclude companies with excellent capabilities in, say, timed fuzes, simply because it was not manufacturing proximity fuzes.

Small, high-tech companies that are bidding for the contract argue that the MoD would benefit by diversifying its sources of supply, rather than remaining dependent on one large PSU. The Defence Procurement Policy of 2008 (DPP-2008) encourages the cultivation of diverse suppliers.

The MoD has not responded to an email questionnaire on the subject.

The tender for 10 lakh fuzes is also characterized by a high degree of tolerance for ECIL’s dependency on imported fuze components from Fuchs. The RfP specifically allows import duty exemptions for fuze components up to 70% of the value of the contract. Considering that the contract value includes a profit margin of about 15%, the 70% exemption clause effectively allows vendors to import 80% of the fuze.

“This is hardly indigenous production”, points out Dr Jagdish Prasad, Chairman of HBL Defence Electronics, which claims a far higher percentage of indigenous components in its fuzes. “Importing 70% of the fuze and assembling the components in India does not wean our military off foreign dependency.”

This tender, floated on 2nd April and opened on 27th August 09, is currently hanging fire. MoD sources say that objections from MPs, and from government vigilance organisations, have held back the MoD from ordering trials and awarding the contract.

Before electronic fuzes were invented, artillery shells were exploded by mechanical fuzes that detonated on impact with the ground. Birla group company, VXL Technologies was India’s primary supplier of mechanical fuzes. Three decades ago, Bhabha Atomic Research Centre (BARC) first produced electronic proximity fuzes; the production licence for the famous VT-8A fuze was given to ECIL. When that became obsolete, ECIL’s failure to absorb technology, and to conduct R&D on fuzes, took it to Fuchs. That great dependency continues today.

20 comments:

If MOD wants to give preference to its PSU's on its tenders, what is wrong in that. Considering the fact that:1. The finished product has to be approved by army's quality control.2. PSU's have decades of experience and capability to do so. 3. The risk of confidential information leak is less.4. Are the private firms mature enough to handle such projects and deliver it with quality?

What action has Mr.Anthony taken to root out corruption from MOD. Why is that imported components are being provided to armed forces as Indigenous. What action will be taken against who are responsible for such corrupt practices. These people are bane for the Indian nation. Either Mr.Anthony cleans MOD of corruption or he is surely going to loose the Mr.Clean title very shortly for allowing such malpractices within his department.

Though all info is correct but your title 'may' convey the impression that GoI is favoring a PSU. As the content of article clearly shows that GoI is favoring a foreign party in garb of PSU.

I think that you would know by now a lot of details as to how "single party deals" are entered into using PSU as a shield. This relation is also made permanent by enlarging the scope of contract to run many decades.

I think we need journalists like you to expose the facade of 'indigenisation' being run by PSUs and OFBs.

The RfP has been made in such a manner that it will exclude allompanies, not just private ones.This may suit ECIL as it can continue to supply fuses to the army on a single tender basis but it will also exclude other defense PSUs who are also interested in making electronic fuses for the armed forces.The best thing would be for the present RfP to be cancelled and a three fresh RFPs(one for each type of fuse) to be issued.Ajit Singh

Ajaiji, you are a light of hope in all but lost cause of Indian defence journalism. I just wish that there were more journalists like you with courage and desire to expose the ugly underbelly of MoD under the useless AK Antony. Most journalists unfortunately do little more than copy and paste the brochure and publicity material from MoD and foreign companies.

It is criminal on the part of AK Antony and his minions in MoD to play with the nation's defence preparedness. Why aren't they being tried for treason? We would be better off without them.

f MOD wants to give preference to its PSU's on its tenders, what is wrong in that. Considering the fact that:1. The finished product has to be approved by army's quality control.2. PSU's have decades of experience and capability to do so. 3. The risk of confidential information leak is less.4. Are the private firms mature enough to handle such projects and deliver it with quality?

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The private sector will always beat the governmenet sector. Guess who makes America's weapons which are the best in the world, the private sector. The private sector gave America the F22 for instance..there is no use of a growing economy if you don't tap the private sector.

hey ajaiji why werent my comments posted? about creating a jv of the private industries making different fuze types to create a seperate entity; and the need of private entities to be competitive by hook or crook! whats wrong with that??

Shukla ji, how come you have information about the exact % of imported content in ECIL fuses and not the exact % of imported content in HBL defence Electronics one??? and one more question shukla ji, is Dr Jagdish Prasad an ex PSU employee???

So, here's another bit of information about how these tenders (unwanted & tenders without "baaps" in GOI)are rejected.

The Govt releases specifications of each product (electronic) that it intends to purchase. For example, the dimensions can be 20mmX11mmX 1.2mm. Think that is easy to achieve. Thing again. The product should work on a frequency of 810Hz. Now one product may work at 798Hz and another may work at 900Hz and still do the same job, right? Haha, right. You see-before the tender is released, the specs are copied from the "blue-eyed" product (read the product which has to be bought). Now since no other product can match the exact technical specification of the indent (the spec released in the RFP), the procurement guys will be forced to make the "blue-eyed" product T1. Inspite of doing a equal or better job, the other products will be T2/T3 etc...

Voila. The indentor will claim only T1 does the job because T1 matches all specs. Even though T1 may not be lowest priced, unless it is priced in the stratosphere, it will be selected.

Btw: the private companies who manufacture one fuze each can put in a combined tender for all 3 fuzes by creating a new company representing all 3 companies.

Actually, I've visited HBL's facilities in Hyderabad and seen their JVs with various foreign partners. But I suppose your visit to the HBL website qualifies as "research".

Are you trying to say that any company who has anything to do with any foreign vendor should be treated as a foreign entity? If that were the case, nobody in India would make the cut.

My article compares a PSU, which receives 100% components from abroad, with a number of private players who make significant parts of their fuzes in India... but still lose out to DPSU influence in the MoD.

If you don't agree, no problem. You're in illustrious company... the MoD and ECIL think I'm talking out of turn too. Join the party!